2018 (1) TMI 887 - AT - Income Tax

Addition on account of direct expenses by invoking provisions of section 145(3) - Held that - We find force in the submission of the assessee that when rejection of books of account by the Assessing officer u/s.145(3) is not sustained by the CIT(A), there is no ground to estimate the income by the Assessing Officer. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition of ?2,10,12,267/- on account of direct expenses by invoking provisions of Section 145(3) of the I.T. Act, 1961.
2. Deletion of addition of ?18,86,815/- on account of indirect expenses by invoking provisions of Section 145(3) of the I.T. Act, 1961.
3. Deletion of disallowance of ?3,69,635/- on account of depreciation on crane.

Detailed Analysis:

1. Deletion of Addition of ?2,10,12,267/- on Account of Direct Expenses:
The CIT(A) found that the rejection of books of account by the Assessing Officer (AO) under Section 145(3) was not justified. The rejection was based on low gross profit, constant yield, and maintenance of quantitative records, which the CIT(A) deemed unreliable. The CIT(A) noted that the appellant maintained quantitative details as required under Excise rules and submitted monthly returns to the Excise Authorities without any discrepancies. The gross profit from core business was better than the preceding year. The AO did not find any material defect in the accounts to suggest profit suppression. The CIT(A) concluded that the estimation of income by the AO was not warranted, as there was no suppression of material facts or specific discrepancies in the books of account. Therefore, the addition of ?2,10,12,267/- was deleted.

2. Deletion of Addition of ?18,86,815/- on Account of Indirect Expenses:
The AO disallowed indirect expenses due to cash payments and disproportionate increases in expenses. However, the CIT(A) found no evidence of unverifiable or overstated expenses. It was a common business practice to make cash payments for petty expenses. The CIT(A) emphasized that increases in expenses could provoke inquiries but were not grounds for disallowance unless proven to be unrelated to business. The AO did not present any specific instances of overstated expenses. The CIT(A) referenced several judgments supporting the view that disallowances based on cash payments or expense increases without evidence were unjustified. Consequently, the addition of ?18,86,815/- was deleted.

3. Deletion of Disallowance of ?3,69,635/- on Account of Depreciation on Crane:
The AO disallowed depreciation on two cranes, questioning the payment of transportation charges. The appellant provided evidence that transportation charges were included in the tax invoices from the supplier, who dispatched the cranes on 30.04.2009 and 20.03.2010. The cranes were received and put to use within the relevant financial year. The CIT(A) verified the tax invoices and payment records, confirming that the cranes were put to use before the end of the previous year. Therefore, the disallowance of ?3,69,635/- was deleted.

Conclusion:
The appellate tribunal upheld the CIT(A)'s order, finding no specific errors in the CIT(A)'s detailed analysis. The tribunal confirmed the deletion of additions and disallowances made by the AO, resulting in the dismissal of the revenue's appeal. The judgment emphasized the importance of evidence-based assessments and the inadmissibility of arbitrary disallowances or additions without concrete proof.